Questor share tip: Babcock storms ahead with more growth

Babcock on a winning streak with plenty of projects in the pipeline. Questor
says buy.

Babcock is mostly associated with its military contracts, which include maintaining British Navy submarines and training RAF pilots. But ambitions to ramp up its civil business are coming along nicely, not least due to significant strides into nuclear in recent years.Photo: Royal Navy

4:57PM BST 14 May 2013

Babcock delivered its tenth straight year of growth on Tuesday after pushing pre-tax profits up 16pc to £317.8m on revenues of £3.3bn, cheering investors and pushing the share price up 6.8pc to a new all-time high of 1173p.

Babcock is mostly associated with its military contracts, which include maintaining British Navy submarines and training RAF pilots. But ambitions to ramp up its civil business are coming along nicely, not least due to significant strides into nuclear in recent years.

With 4,000 nuclear workers on its books, Babcock is the biggest third party provider of services to Britain’s civil nuclear industry, and is standing on the precipice of a major growth opportunity.

It has already secured partnerships with Hitachi and EDF for work on their planned nuclear new-builds, which are set to provide the UK’s first new atomic power capacity in a generation.

Despite protracted negotiations between EDF and the government on the minimum pricing of the power generated by the new facilities, Peter Rogers, Babcock’s chief executive, has “no doubt” an agreement will be struck.

Babcock’s sights are also set on growing its decommissioning business. It is one of three bidders for a lucrative 20-year contract to dismantle reactors at 12 historic nuclear sites.

The company is also extending its reach overseas, winning new contracts in the Middle East, Spain and Korea this year, adding to existing footholds in Australia, Canada, and its main international market, South Africa.

There are risks, with the defence sector still posing uncertainty at a time when budgets are shrinking. However, there is evidence that momentum has been building in recent months and that Babcock could stand to benefit as the Ministry of Defence looks to ramp-up private sector involvement.